Shippers that send cargo through the Port of New York and New Jersey may want to monitor the outcome of the debate over how a truck driver is defined — as an independent contractor or an employee — to determine whether a trucking group is correct that a change in the regulations could diminish the drayage service at the port. (Above: Trucks near the Port of New York and New Jersey.) Photo credit: Hugh R. Morley.

A leading trucking group in the Port of New York and New Jersey is concerned a proposed change in state regulations that help define whether a worker is an independent contractor or an employee could deter owner-operators from serving the port, and diminish the drayage fleet.

A letter submitted by the Association of Bi-State Motor Carriers to the New Jersey Department of Labor and Workforce Development on Tuesday urged the department not to amend a state regulation that gives the department a say in whether a worker is classified as an independent contractor who is exempt from coverage under Federal Unemployment Tax. The test effectively determines whether a worker is an employee, for whom the tax must be paid, or is an independent contractor who does not fall under the law.

If the proposed amendment goes through, it would mean independent contractor status would have to be verified with a letter or document from the Internal Revenue Service (IRS) — which the association believes is much harder to obtain than if the state does it.

NYSA, Teamsters take opposing sides to proposed regulation change

The New York Shipping Association (NYSA), which represents ocean carriers and marine terminals in the port, said it also is watching the department’s proposal, and expects to send a letter expressing concerns that the move could hurt the port industry, because it is reliant on independent contractor truck drivers.

The International Brotherhood of Teamsters, however, backed the department’s proposal. In an April 10 letter, it said it would “make it easier for both workers and employers to determine whether workers have been appropriately classified, for purposes of employment.”

The department declined to comment, saying it doesn’t comment on issues under review. The department is accepting comments on the proposed plan and in the coming weeks will submit its final determination to the governor for review.

The debate over the regulation follows an executive order signed two weeks ago by Gov. Phil Murphy — who took office in January after an electoral campaign in which he embraced unions — that created a Task Force on Employee Misclassification. The task force will look into state laws and procedures that define how an employee is classified, and how they are enforced. The Teamsters immediately praised Murphy’s creation of the task force.

The focus on the independent contractor/employee issue marks the resurgence in New Jersey of the push and pull between owner-operator truck drivers, who want to retain their independent status, and the companies that contract them, on one side, and on the other unions, who want to increase the ranks of employee drivers.

Under US law, independent contractors such as owner-operators cannot be unionized, but employee drivers can. Similar battles sporadically flare up in ports across the country, driven by unions, often in locations where elected Democrats will back union efforts. Drayage operators in Los Angeles-Long Beach have been making the same argument for at least five years now since the Teamsters union has been using misclassification as its legal vehicle for organizing drivers in the largest US port complex.

The Teamsters have also been lobbying the mayors and harbor commissions in Los Angeles and Long Beach to support their efforts to prove driver misclassification at drayage companies.

The re-emergence of the issue — through Murphy’s creation of a task force to look into it and the proposed regulation amendment — comes as Democrats now hold the state’s two legislative bodies and the governor’s office.

The Association of Bi-State Motor Carriers set out its opposition to the proposed amendment in a May 15 letter urging David Fish, executive director of the department’s Office of Regulatory Services, to reject the proposed change. The association said the amendment could have broad implications for the Port of New York and New Jersey.

“The driver shortage at the Port of NY & NJ is already critical,” wrote association director Dick Jones. “And this proposed change by the NJ Department of Labor will further exacerbate the problem, pushing drivers away from serving at the port due to its burdensome, unduly restrictive regulations. Please do not approve this proposed change.”

The association argued that the change would trigger a massive amount of paperwork and red tape” for businesses that have not received official IRS rulings or determinations, and would create an “unfairly cumbersome burden that will negatively impact port operations in New Jersey.”

Focus on New Jersey jurisdiction because most port activity occurs there

Because most of the port’s activity takes place in New Jersey, any change state regulation to make it tougher for drivers to be classified as independent contractors could impact the port’s drayage fleet. The association cited figures showing that 80 percent of the 14,000 truckers that serve the port are independent owner-operators. The Port Authority of New York and New Jersey says about 9,000 truckers actively serve the port.

The regulation governs whether a worker is an employee, for whom unemployment and other taxes must be paid, or is an independent contractor who does not fall under the law. The effect of the amendment would be that owner-operators will have to go through a more “cumbersome” procedure for the IRS to prove they are not employees, the association said.

At present, New Jersey assesses whether a worker is a contractor or an employee using what is known as the “ABC test.” To qualify as an independent contractor under the test, the worker has to show that: (a) the driver has control and discretion over how his services are performed, (b) the service is separate from the employer’s usual business or location, and (c) the operator is customarily engaged in an independent business.

New Jersey law exempts a contractor from the test if he or she owns or operates a truck that weighs 18,000 pounds or more, and can demonstrate he or she is an independent contractor under another test, the so called “20-factor test,” which is used to determine whether a worker must pay — or not — federal employment tax, and so is an employee. The Association of Bi-State Motor Carriers says the 20-factor test is “much more forgiving” than the ABC test.

If the department eliminates that option, a worker would have to show owner-operator status had been conferred in a letter, audit, or other document from the IRS.

Fred Potter, director of the Teamsters’ port division, welcomed Murphy’s creation of the task force. He called it the “fulfillment” of the governor’s promise to the union to support drivers that felt they were misclassified as independent contractors, and felt they should be classified as employees and therefore receive the benefits that come with that status.

“For the last 8 years, [New Jersey] had a certain political regime that wasn’t interested in cracking down on the issue” of misclassified workers, Potter said.

The executive order signed by Murphy, creating the task force, said misclassification of employees as independent contractors rather than employees “deprives New Jersey workers of important legal rights and protections as well as certain employment-related benefits, including unemployment insurance, workers’ compensation, and disability benefits.”